This paper builds models of nonlinear dynamics in the aggregate investment and borrower net worth and uses them to study the causes and nature of endogenous credit cycles. The basic model has two types of projects: the Good and the Bad. The Bad is highly productive, but, unlike the Good, it...

The paper describes situations where commitment via delegation is beneficial, even when the delegation is unobservable and the players have the option to play the game themselves. The potentiual for such benefits depends on the type of delegation, incentive versus instructive, the possibility of...

The trading volume of long-lived securities with recursive payoffs, such as equity, is generically zero in infinite-horizon recursive pure exchange Lucas asset models with heterogeneous agents. In equilibrium, there is no portfolio rebalancing of such assets. More generally, the end-of-period...

This paper studies defense policies in a global-game model of speculative currency attacks. Although the signaling role of policy interventions sustains multiple equilibria, a number of novel predictions emerge which are robust across all equilibria. (i) The central bank intervenses by raising...